The Pellucid Perspective - February 2018 - 14

MARKET FOCUS

price of golf isn't necessarily revealed by a balanced distribution
(i.e. Value golf could still be expensive in the absolute).
During the "go-go" years of supply development (1990-2000),
Chicago participated in the "build a course a day" craze, increasing supply at an annual rate of ~2% (compared to the (unreasonable) US average of >2%, we were slightly constrained by the
market force of not having an abundance of affordable, developable land in many areas like the North Shore). Working to
slightly offset this was average annual population growth (~1%
annually during that period). Using our pre-2000 calculation for
supply dilution/absorption (supply change vs. population change)
we estimate that the market was at ~7% dilution at the turn of
the century vs. the 1990 benchmark (slightly lower than the US
average of 11% overhang). Since 2000, the annual rate of supply growth has throttled back significantly (<0.5%) while the
population growth rate has similarly tailed off to about half the
national average rate. A better available metric however for supply dilution/absorption in the post-2000 period (because we have
semi-accurate facility-reported rounds figures at state and market level) is comparing supply growth to the changes in rounds
demand. Since 2000, the market has experienced a meaningful
decline in the annual rounds demand rate (>-1.5% higher than
the national average of -1% annually) so we're actually showing

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14 The Pellucid PersPecTive

increased supply dilution during the '00-'13 period. Combining
the 1990-2000 decade dilution rate (-7%) and the 2000-2013
period results (-26%), the average facility in the market is roughly
33% worse off than they were in the 1990 benchmark (spot on
the national rate of -33% supply dilution for that same '90-'13
period). Despite the fact that golf course "plants" these days are
a rare sighting, the only way out for supply absorption to resume
is to find a way to increase rounds annually at some modest (slow
recovery) or healthy (faster recovery) rate or the supply take-out
rate increases dramatically.
The average facility has throughput of roughly 25K rds/yr,
lower than the national average before factoring in climate and
daylight influences. The more accurate measure is the market's
48% Utilization Rate which also lags the Top 25 US Golf Markets' average (56%). This means that, after factoring in the handicap of a less-than-12-month season, the market's average golf
"factory" runs at lower throughput vs. its Top 25 US Golf Markets peer group. On the annual Golf Fees Revenue productivity
side, the market generates nearly $1.1M per public regulationlength EHE which is slightly below the Top 25 Markets average. The silver lining is that when we get to the weather-adjusted
"money line," the market's Greens Fee Revenue per Available
Round (RevpAR = Greens Fee Revenue/Available (Capacity)
Rounds) registers at $21, beating the Top 25 Markets' average of
$19. (Remember however that all the revenue figures are based
on calculations off the highest Weekend Green Fee and don't
factor in the mix of weekend/weekday play or the effect of discounting present in the market so actual mileage across markets
will vary). As a final new measure for the Top 25, the Golf Fee
Profit-per-Available Round estimate (designed to equalize the
equation when comparing high cost-of-living markets to more
reasonable ones) is $6, which is well below the national average of
$9. (So we give back some of the financial benefit due to the fact
that either cost-of-living-related expenses are higher or we put
more maintenance into our courses relative to the short season
vs. the average). For more detail on what this means and how
that's calculated, see Jim's article in the October '14 Perspective
edition (or send us an email at jimk@pellucidcorp.com and we'll
fill in the blanks).
In summary, Chicago has good market fundamentals as it relates to the golfer base, the mix of supply and the fact that we
didn't bring as much supply dilution into the 2000s as the average US market. On the other side of the ledger, the meaningful
annual rate of rounds decline has created a new form of "supply
dilution" in that we have a healthy number of courses competing
for a shrinking rounds "pie." From what we see however, there is
likely going to be a continued realization by municipalities that
their current golf "footprint" exposes them to unnecessary longterm financial risk relative to the recreation provided and repurposing of some of their golf real estate in the next 2 years is likely.
That would help the overall market in that the supply will contract vs. transact and the taxpayers will gain the financial benefit.
That outcome however is not a certainty as we all know that, even
when the math and money is eminently clear, politicians still can
be influenced by the vocal minority if there are votes and special
interests involved. Stay tuned...
n
February 2018

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